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Aric

GK,
One thing I like about your blog is that you make actual predictions, even quantitative ones. It seems so many futurists today don't want to stick their neck out past 'scenarios' and 'trends'.

Charles Pierce

I was interested to find this blog. 20 years ago I had a book published on different economic concepts to point the way to a sustainable world economy. Someone who liked the book recently contacted me to suggest that I update and re-publish it as a blog. She set up the blog, and the book is nearly complete on the blog in a series of postings. Here is the link:

http://www.economicsforaroundearth.com

With all good wishes,
Charles Pierce

Geoman

I think you should add in the date where we reach actuarial escape velocity.

I think 2015 is a tad pessimistic for the 4 door sedan costing 5 cents per mile to operate. I think we'll see that by 2011. For cars, the revolution starts in 2010.

Mike Ralls

I think you are overestimating China's growth rates over the next 30 years. China has been in a good demographic spot for the last generation, but it's about to be in a very bad one. Simply put the problem will be how does one worker provide for two parents, and four grandparents? China's falling birthrate means that it's going to have a bad dependency ratio in 10 years and a god-awful one in 20 years. It will be very hard to sustain the high growth rates it has been experiencing when that happens. And it's demographics are unlikely to improve anytime soon, and could be even worse than predicted thanks to sex-selective abortion.

GK

Geoman,

I am a bit conservative on AEV, and think there is only a 50% chance of getting there by 2040 (see the link in the 2040 para).

Mike Ralls,

Perhaps. Their fertility rate, while below 2.0, is still much higher than Taiwan or South Korea. But China today is about the same per-capita GDP as Taiwan was in 1980, so it could grow at almost the same rate (slightly less as China is much bigger than Taiwan).

Paul Moore

Considering the news from Washington and Wall St. this week, your predictions are a breath of fresh air. I hope you're right.

jeffolie

I predicted the housing crisis years ago. Over a year ago I predicted The Crisis in The Summer of 2008.

For a while now on other forums I have been predicting The Crisis in the Fall of 2009 which will result in a mega huge housing bailout to take the 2 million empty houses off of the market by the government. I predict housing prices will stop going lower in 2010. Because of the 2010 house price stability, the inflation rate will begin a very rapid spiral upward.

The end of 2012 will see the end of the financial world as we know it.

GK

jeffolie,

I predicted the housing crisis years ago.

Too bad I beat you to it, by predicting it 2.5 years ago (actually, you were in agreement then, so you did better than you are giving yourself credit for).

The end of 2012 will see the end of the financial world as we know it.

Come on, let's not get carried away here.

Mike Ralls

Taiwan's fertility rate in 1980 was 2.5. China's today is somewhere between 1.8 and 1.2 (my guess). That's a big difference, and their dependency rate is going to be worse than Taiwan's was when it was experiencing great growth rates.

And of course, relatively speaking it's worse to be as rich as Taiwan was in 1980 in 2008, because the rest of the world is much further advanced in 2008 then it was in 1980.

GK

Mike Ralls,

If it really is 1.2, then yes, they have a problem.

If the UN estimate of 1.8 is correct, then I don't think they have a problem yet.

The very best fertility rate for any country, of course, is between 2.1 and 2.5. Unfortunately, most countries blast through this band quickly, dropping from 3.0 down to 1.8 in a very short time.

Mike Ralls

IIRC, the 1.8 figure comes from the Chinese government (which the UN just takes at their word) and when have authoritarian regimes ever lied about their statistics?

Also, keep in mind that sex-selective abortions (which have become much easier and cheaper over the last generation) are very popular in China, and this is likely to make the birth rate fall by even higher rates.

Mike Ralls

Oh, one more point on this; keep in mind that the more educated, the more urbanized, and the higher income one has in China, the more likely one is to have a sex-selective abortion.

That means that as China grows richer, more urbanized, and more educated, the sex imbalance is likely to increase.

GK

Yes, sex imbalance is a terrible thing for a society on so many levels. Demographically, psychologically, mathematically, it is just bad, bad, bad.

jeffolie

These are some of my economic predictions made 6 months ago at different sites:

In "jeffolie predicts..." the government will take 2 million empty houses off the market as a response to The Crisis of the Fall of 2009. At a nationwide medium price of $200000 that results in $400 Trillion. Obviously even the government can not raise that kind of money, but if the government buys the defaulted mortgages for $1000 it could happen. And that would be the mega huge housing bailout.

Very rapid inflation will be held down by falling housing prices. By any reasonable measure (or even the government's lying measure), the cost of living must include housing costs. A majority of Americans are home owners or better described as homedebtors.

So while the lying, corrupt government is going to spend $1+ Trillion to buy the bad debt of Financials, until the empty house inventory disappears from the marketplace, the inflation rate will be held down.

A new wave of semi-prime rate mortgages are going to peak next summer thus creating the next tsunmi of foreclosures. These mortgages labelled "Option ARMs", "Pick-Your-Payment", "Alt-A", "Downpayment Assisted", "80/20" are going to bring a new world of PAIN until the mega huge housing bailout of The Crisis in the Fall of 2009.

The very rapid inflation starting in 2010 will come from the financial world's recognition that the taxpayer can not pay for all the bailouts and will not stand for compounding the taxes the Obama administration will have started. The political revolt will force a devaluation of the dollar. Bernanke or his ilk will get to multiple the money supply and credit will expand to pay for the mega huge bailouts. In short the government will create more money and credit bringing very rapid inflation.

The government would acquire the empty houses and commercial structures by acquiring the bad debt and taking posession. This Trillion dollar and more program is being discussed daily in the main stream media as : government to buy MBSs (Mortgage Backed Securities) and ABCP (Asset Backed Commercial Paper) or the rebirthing of the RTC(Resolution Trust Corporation).


_____ABOUT BANKS:

I created the JEFFOLIE DEATH WATCH at other sites and predited the death of Bear Sterns, Indy Mac, Washington Mutual, Fannie & Freddie, and Downey Savings & General MotorsSavings (which are not dead yet) along with Mervins and Mrs. Fields cookies, Uno Pizza among others.

...Some comedian during the Great Depression quipped, "I'm not interested in the return on my money, but rather, the return of my money."

The collapse will be a massive redistribution of wealth, hitting the rich, not the poor. All of this hypothecated wealth would disappear. The million dollar cats, dogs and tulips would be marked to market. Paper millionaires would go up in a puff of smoke.

Decreased consumption, would lead to layoffs. This would expose the credit card bubble and threaten the banking industry, or who ever holds all of this credit debt. Liquidation would then be the final game.

If that isn’t enough, Congress will rise up and try to save us. That's the scary part! It's kind of like getting on an airplane and having an election, to see who's going to be the pilot.

-----------------

I have ranted about derivatives, Credit Default Swaps and counterparty risk. By the way these are what brought AIG to its knees.

-----

I have predicted "China's Fall and Decline".

------

I predict the failure of Basel II because of opaque backroom operations.

-----

I predict the collapse of credit card backed bonds and securities as consumer spending collapses in The Crisis in The Fall of 2009.

--------

I predict: Obamavilles/squatters/Tent cities like in the Grapes of Wrath.

---------------

I predicted that The Crisis in The Summer of 2008 would start in late spring of 2008.

----------------

I predicted in 2007 that there would be Stagflation until 2010 when housing prices would stabilize.

GK

jeffolie,

I don't think the government will acquire houses.

Of course, to fill up housing inventory, the solution is simple : speed up greencards for the 1 million highly educated immigrants currently in the waiting process. These are doctors, engineers, and scientists and are positive contributors to American society (unlike uneducated illegals).

These people will not only consume housing supply, but increase tax revenue. They will not 'take jobs' from Americans, as college-educated people only have a 1.2% unemployment rate to begin with.

That is the easiest and best way to solve many problems at once.

jeffolie

During the Great Depression, the government via the RFC bought houses and farms. The Reconstruction Finance Corporation (RFC) was an independent agency of the United States government chartered during the administration of Herbert Hoover in 1932. It was modeled after the War Finance Corporation of World War I. The agency gave $2 billion in aid to state and local governments and made loans to banks, railroads, farm mortgage associations, and other businesses.

Already the Bush Administration has authorized the buying, remodeling and then reselling of houses in the recent housing bill. That bill dolled out money on a quasi-democratic basis to Cities such as Los Angeles to perform these functions. All that needs to be done is to fund that bill that authorizes a Trillion dollars. And let us not forget the Fannie & Freddie bailout. They can be used to buy mortgages.

The legal framework is in place, all it takes is the motivation of Congress to fund the programs. I predict the Tsunsumai of new foreclosure in The Crisis in The Fall of 2009 will push the Obama Administration and Democratic legislature into a mega huge bailout including taking 2 million empty houses off the market. If the government wants to give them to foreign born professionals, I have to adversion to getting all that new brain power.

jeffolie

"...I have to adversion to getting all that new brain power."

This should have been:

"...I have NO adversion to getting all that new brain power.

A terrawatt of installed PV capacity by 2032?

Hmmmm.

Current electrical demand is around 4 TW. Lets' say total electrical demand is somewhere around 15 TW by 2032. 2008 production capacity is around 12 GW. That means that in 24 years the world will produce an additional 288 GW of PV power. There are about 12 GW already installed, so by 2032 there will be almost 0.3 TW in use, with no increase in PV production!

But production capacity of PV was just 1 GW in 2004. Capacity has increased 12 fold in just 4 years? Yipes!

Can the explosive growth in production continue? Why not? Let's assume that solar production continues to grow at rate of 3 GW per year, as it has for the last 4 years. By 2032 we should be able to produce around 800 GW per year!

One TW by 2032 looks like a piece of cake. I'd suggest that solar penetration of the market by 2032 is likely to be much higher, perhaps 20% of our total power consumption worldwide (3 TW). It could easily be much, much higher.

I am heartened by how conservative many of your estimates are.

jeffolie

I am a follower of the theory of creative destructionism in economics. From the ashes of a prolonged economic downturn, new industries arise as the old traditional industries perish. New industries build on developed modern technologies that could not get enough capital to overcome the entrenched traditional industries. But the entrenched traditional industries are distressed in the prolonged economic downturn thus giving an opportunity for new production methods and industries to arise.

So, long term I am optimistic but from 2010 to 2020 I am horrified.

GK

jeffolie,

Housing will be poor for a decade or more, as I have written about since 2006.

But I don't think the broader economy will suffer for such a long period. World GDP is still growing at 3% a year.

The best leading indicator of a turn-around is if productivity stats shoot up. It means that hiring will resume in some months.

jeffolie

More bailouts will happen.

The Executive and Legislative branchs have learned that they will help themselves to get reelected while funneling tonnes of money to people who will kick back tonnes of campaign contributions.

This money circle will be recycled again and again in new bailouts.

The bailout existing list is growing:
Bearn Stearns 30 Billion assistance
GSE $Trillions of debt shifted to the taxpayer
AIG nearly nationalized for $500 Billion
Wall Street bailout of 450 pages for $700 Billion

jeffolie predicts....

The future bailouts will include:

Commercial Paper
FDIC unlimited deposits insurance
All insurance companies, money market funds, car companies
State & Local governments who cannot borrow money
Public & Private Higher Education short term debt
RFC rebirthed to buy every empty house

Zyndryl

Reading these posts, I really don't know what everyone sees in Obama actually having a chance in winning.

The Bradley Effect is real -- just read what those who study it professionally for a living are saying.

For one thing, it is already been shown that White DEMOCRATS will be more likely to vote that way. If true and the latinos vote similarly, game over. Equally game over if Palin can shift the 60/40 vote Dems traditionally have with women towards 50/50.

I also believe that the vast majority of whites who will vote differently than what they tell pollsters or even friends will do so not because of crass racism, but as payback for all the affirmative action & political correctness crap they've had to put up with. There are a LOT of whites who hold resentments -- from real or perceived experiences -- in one degree or another out there.

But PC and AA can't be enforced in the privacy of the voting booth. It will be tough to avoid inflicting some payback, don't you think?

Also, given how candidates have to display their full legal name on the ballots, the first and last thing most voters will see before they violate some poor chad will be the words 'Barack Hussein Obama'. As soon as they see 'Hussein' many of them will suddenly discover their Inner Islamophobe, too.

The political scientists will call it 'The Obama Effect'.

Not even all the rampant voter fraud in the battleground states will be able to compensate for this, in my opinion.

Another prediction (albeit somewhat wild card) if the Bradley Effect ends up in a huge gap in actual voting vs polled: Rodney King-style riots in Chicago, Detroit, Baltimore, Philly, NYC, D.C., Atlanta, LA, etc.

If true, it will be really funny to hear them justify burning down their own neighborhoods as 'the Racist Republicans fault!' even though it will be mostly the fault of the whites down at the union hall who've voted Dem for generations but voted against Mugabe, er...Obama.

Bobby's Brain

Very good futurist timeline on economies.

However, you miss out two key crucial aspects that will influence the economies of the world in fundamental ways: the advancement of robotics/AI technologies and the displacement of human employment for robots under low-cost financial benefits. That mean the elimination of hourly wages, job benefits and cost-of-living opportunities for the average human workers, being replaced by faster, efficient robots on the cheap. Watch the future of Japan for its quickening acceptance and deployment of robots in all levels of the Japanese society and watch how its economy being affected by that.

jeffolie

jeffolie prediction...government buying empty houses

Among the jeffolie predictions, one appears to have a European start. The prediction made was that the US government would buy the empty houses in The Crisis in The Fall of 2009. Well the French have gotten the flavor of this idea:

----------------------------------------------------------------
Morningstar is reporting, France To Buy 30,000 Planned Homes To Boost Building Business.


President Nicolas Sarkozy, grappling with the global financial crisis, has decided to directly support the French construction industry by buying 30,000 homes waiting to be built, the presidential palace said Wednesday.

"So that current property programs can be successfully concluded, the president...has decided to intervene directly, ordering the purchase at discounted prices of houses on which building work has not yet begun," a statement said.

This move will initially cover 30,000 homes, and by ensuring that they will be built, the decision will support the homebuilding industry, it said.

http://news.morningstar.com/newsnet/ViewNews.aspx?article=/DJ/200810011450DOWJONESDJONLINE000712_univ.xml

Zyndryl

jeffolie -

If France ensures that 30,000 homes get built, that doesn't solve any overcapacity problems unless they then tear them down again or let them remain vacant.

Either way, it looks like they are just propping up the construction industry (bad enough) and not the real estate values of all houses already existing, which is what the US government will be going for if they started buying up houses and bulldozing them, as you've suggested.

jeffolie

I am suggesting the US government is a corrupt liar and it will take those empty houses off the market. I do not know if it will bulldoze them, donate them, let them rot or deteriorate. I have seen the military mothball military housing and bases and them either let them deteriorate for decades or sell them to state and local governments for parks and airports. Perhaps the government will rent out the empty houses or use them as self help fixer uppers for low income people.

Zyndryl

I don't think the Feds will be able to pull it off. At least, not in time to stop the rapid drop in home values.

2 million units nationwide being removed by the government may be enough. But which 2 million and where in the nation? Most of the home value crashes are just in four states.

Homes are selling in my area (SF Bay, Kalifornia) for income multiples well above 3 (3x median income). We are talking condos selling for 4x and houses starting at 7x/8x. In Texas they are selling for around 3 and in the midwest, below that.

So, will the Feds be smart enough to target areas like mine? What if some Congresscritter in New Mexico who chairs a powerful committee wants some of that targeted in his district?

My point is: The Feds won't be able to get their act together in time. Over a long period of time, they can do it sure. The Resolution Trust Corporation proved that, at least. FDR's Home Owners' Loan Corporation took three years to do its thing.

We don't have three years.

jeffolie

jeffolie predicted...

Among my predictions of 'future bailouts' was that the Fed would buy commercial paper.

The Fed is now about to buy CP and ABCP with a new 'facility'.

jeffolie

This was my post at a different site:

jeffolie predicts .... future bailouts

More bailouts will happen

The Executive and Legislative branchs have learned that they will help themselves to get reelected while funneling tonnes of money to people who will kick back tonnes of campaign contributions.

This money circle will be recycled again and again in new bailouts.

The bailout existing list is growing:
Bearn Stearns 30 Billion assistance
GSE $Trillions of debt shifted to the taxpayer
AIG nearly nationalized for $500 Billion
Wall Street bailout of 450 pages for $700 Billion

jeffolie predicts....

The future bailouts will include:

Commercial Paper
FDIC unlimited deposits insurance
All insurance companies, money market funds, car companies
State & Local governments who cannot borrow money
Public & Private Higher Education short term debt
RFC rebirthed to buy every empty house

brokerdavelhr

If any civil company was to do what the govt is doing now, they would be another ENRON. Someone give me a straight answer- WHAT IS GOING ON?!

jeffolie

What is going on is that the lying, corrupt government is stealing more money from the taxpayer to give to special interests.

When you hear 'I am from the government and I am here to help you', then run and do not walk.

brokerdavelhr

Jeffolie,
I understand that...the question was of a rhetorical nature. The problem here, is that McCain isn't exactly getting anyone interested in his side because well....he's an idiot.
This makes Obama more appealing as what most people see is the only other choice. He sounds more intelligent, and runs off of the 'the other person was wrong' statement (please note that he begins almost all of his sentence with that). The sad fact is, he is every bit as full of poison as McCain...he just honey coats it. Anyone who has been paying attention the last 10-15 years have already seen the pattern he has adopted in both his voting history, and his lies.
What kills me, is that both of these candidates lie about what they stand for to get votes. They both have these huge agenda's and lists of things they are promising the taxpayer. They will indeed fulfill these promises, but at a much greater expense to the taxpayer then what they could ever give back. It is the sickest story in Washington.
Enter a man called Bob Barr. This guy not only admitted to making his mistakes, but explained why, and honestly answered his actions to fix them (i.e. the patriot act). He makes a point of view clear that I have yet to hear from ANY other candidate- That the more involvement the govt has with the taxpayers (like more laws instead of enforcing the ones already in place as we have recently seen in the Bailout, like promising us taxpayers a tax break but not telling us that it will cost us more to get it, like catering to already bloated non-needed programs that hurts far more then it helps, and so forth).
In example- Obama voted for the bail out bill to bail out these 'large corporations' that his campaign ads always nail McCain for supporting. This bail out would waste almost 1 trillion in taxpayers money to bail out private corporations who would otherwise have gone bankrupt for their poor decision. Bob Barr predicted this would happen 10 years ago when it happened the first time.
So my fellow Americans, you do have more of a choice then you know. And for all you people who think that he has no hope of winning, and would therefore be wasting your vote, think about this- you keep you integrity for sticking up for what is right despite the odds, and this is your chance to say- I never voted for either of the two evils, republican or democrat. I gotta tell you, the people who did the most for this country in its making were neither republican or democrat. They were ordinary people bent on getting away from those two.
So go ahead and vote for democrat or republican if you want. Both parties have had over 100 years to make this country flourish. And failed miserably. So please, give the other party a try for once. There is no possible way it can be any worse.

brokerdavelhr

GK,
Sorry about that. But it does tie in. For example, giant coorperation who actually fund all this R&D for the future to happen are getting just as hard as everyone else. Though far from a real 'crises', it still throws a brake on the whole future thing. Sorry.

Zyndryl

brokerdavelhr,

"So please, give the other party a try for once. "

Voting for Barr or any other third-party candidate is not so much as a wasted vote, but rather a vote for Obama. In other words, you are really only giving an indirect vote for one of the majors and not a distinct vote for another, third party.

Unless a third party can supplant a existing collapsing party like the Republicans did to the Whigs -- during the off election season, all they do is play the role of 'spoiler' in our first-past-the-post electoral system. Hence, their candidates are only toxic to one of the other major parties' and will never win in and of themselves.

So, therefore, by voting for Barr, you are really inflicting Obama on the nation and on others while being a hypocrite to claim you aren't causing damage and denying 'There is no possible way it can be any worse." Obama is worse than Barr, isn't he?

The only choices are the ones that all the math is rigged in favor of. If we had proportional voting or instant runoff voting, then I'd probably say, "why not?".

jeffolie

CDS Doomsday is tomorrow !!!!!!


Lehaman's CDS Doomsday is tomorrow when counterparty risk moves from the surreal realm to reality. The Lehman Brothers Credit Default Swaps sellers and buyers hold a meeting tomorrow to square up positions. The counterparties will not all be able to perform their roles of insuring against the default of Lehman's debt. The blood will flow as buyers of the CDSs have to take losses onto their balance sheets.

This will put in doubt the entire $60 Trillion CDS market.

jeffolie

OK

That was over the top. The $60 Trillion CDS market will not end tomorrow. The sun will rise on Saturday and world will not stop spinning. But certainly their will be significant pain.

jeffolie

Worse to come.

In the theory of economic cycles the order of events includes panic, then capitulation, and at the bottom despondency.

As far as the current event, I call this a stock market panic in progress, but not yet the main street economic panic because the unemployment rate is too low.

A stock market capitulation has not happened today. The volume was not high enough. The sell off was mostly in the last hour. But the Volitility Index (VIX) was very high, but it could go higher.

A stock market capitulation is not the end of the recession, neither is a stock market despondency. Stock market crashs and panics lead recessions usually. I still am predicting The Crisis in The Fall of 2009 to follow my sucessful prediction of The Crisis in the Summer of 2008.

brokerdavelhr

Zyndryl

You say that a vote for a third party is a vote for Obama.
The first mistake in this presumption, is that you listen to CNN to much. Matter of fact, this commentary is shared by almost every CNN I have seen yet. Why? Because CNN does not want a third party elected. It would take away their little ‘controvery ratings’ if things in the US actually ran well for once.
The second mistake, is that you are assuming that only republican voters would switch sides to endorse a third party, which in turn, would give Obama the greater percentage overall. Now, the third party relies on the common sense, education, and strength of their voters. This is why a great many people who usually vote republican will vote for Barr this time. I will interject at this point, that Obama voters vote for him for 1 of 2 reasons. 1- Because they think he is right. 2- For the novelty of having an African American in the office. The mistake with number 1, is that Obama is wrong and a liar. The mistake with number 2, is that NOONE should ever run off of a novelty ideal when our countries future is at stake. So if Obama supporters were really as smart as they claim to be, then they would stop sticking stubbornly to such a mis-guided ideal, and stick with common sense and true American ideals.
Your mistake (like that of so many others), is that because you are told this, you will indeed vote for the less of the two evils (rep. or dem.). This makes you (in the eyes of me and so many others), sound typical of the pathetic herd who is guided by the mighty news channels and has neither the heart, mind, or strength to stand for what is right, despite the odds. If Barr does not get elected, it will be in large part due to people like you who are convinced that their vote does not matter. The fact is that less then 48% of the people who are able to vote, really do. Why? Because they figure, ‘why bother?’, and , ‘my guy has no hope of winning, and I’ll be damned if I will vote for the other guy’. The sad truth, is that what America has become. We used to be a proud nation that would stubbornly stick to our ideals despite the odds. Now we believe what we are told to, and then get angry and upset when things get bad.
So if that is your only excuse for not voting for Barr or the like, then I want you to know that there are literally millions who will vote for him as of now. And all it takes to get more, is for you to educate yourself about things, and tell your buddies. And so forth and so forth.

GK,
The only reason I am including this in your blog, is that the other two candidates would either directly or indirectly, slow our progress in technological adaptation. When free enterprise is taken from the people, they no longer feel the need to be progressive and inspired to try to be more then what they are. This is why I am writing this in your blog (by the way, I would take no offense at all if you wanted me to stop all this nonsense, I know web-space can get pricy, and I am really sorry if I am eating yours. Just say the word, and I will keep out the political stuff).

brokerdavelhr

Jeffolie,
What we have here in the stock market is a great buying oppurtunity. It's about time. BTW, the market has always recovered in the past. It is unfortunate that the last huge crash in 1929 (Black Tuesday) led to the advent of Social Security. Look where that got us. Govt needs to butt out, and stop with the quick fix routine. Once again, a clear example on how the more 'popular' candidates have not learned histories lessons.
So it is hardly the end of the world, or the market for that matter. To anyone who pays attention, this is not such a bad time after all. Also please notice that gas prices are starting to slowly drop again, which is a good indicator that the economy is already on its way to recovery.

brokerdavelhr

Zyndryl,

I forgot to add the following:
You said,
So, therefore, by voting for Barr, you are really inflicting Obama on the nation and on others while being a hypocrite to claim you aren't causing damage and denying 'There is no possible way it can be any worse." Obama is worse than Barr, isn't he?

If Obama gets elected, that hardly makes me a hypocrite. McCain is just as bad. So in your point of you, I should settle for McCain. So the damage will be done then too. This fact means that instead of inflicting Obama on people, I should inflict McCain. You really don’t get it do you? As long as people like you have that mind set, the evils will continue to come, and BY YOUR OWN VOTE AT THAT. Or you could just vote right for once in your life. You call me a hypocrite. Well I call you an idiotic coward who doesn’t have the guts to develop a mind of your own.

jeffolie

CDS Doomsday update:

90% LOSSES $360B GONE


LONDON -- Initial results from the Lehman Brothers credit-default swap auction indicate a midpoint of 9.75 -- implying the recovery rate on Lehman's senior debt is about 10 cents on the dollar. The net open interest is $4.92 billion.

http://www.foxbusiness.com/story/markets/industries/media/lehman-auction-implies-holders--cents-dollar/

$360B in payments must flow in the week of Oct 20th or else the counterparties will be in default. Default means the buyers of the CDS must take the losses onto their balance sheets.

jeffolie

Remember $400B in Lehman CDSs is merely a dent in the $60 Trillion CDS market.

jeffolie

The 8.62% return on the auction of about $400 Billion in Lehman CDSs in the CDSs settlement proceeding means sellers of CDSs must payout over 91.4% or $360 Billion to buyers of the Lehman CDSs in the week of Oct 20th.

The sellers are the 'counterparties' that recieved the premiums just as an insurance company guarantees to pay off the losses for a house fire. The 'counterparty risk' is that the CDS seller(insurance company) cannot payout. Then the CDS buyer (the house owner) does not get the money and must recognize the loss on its balance sheet (the house owner gets no money and is left with a burnt down house).

That was the simplified version because in realty the CDS buyer need not actually be an owner of Lehman Brother's debt. Also the CDS seller may have have counter offsetting arrangements the shift or cancel the obligations. CDS seller may have to liquidate other holdings (such as positions in precious metals) to raise funds which may have unintended consequences to third parties having to honor the liquidations (such as margin calls in precious metal positions), etc.

jeffolie

There is over $1 trillion bet on GM credit default swaps.


GM and Ford are on jeffolie Death Watchs for Febuary next year.

jeffolie

Of course, the lying, corrupt government may step in with a new, bigger auto industry bailout.

jeffolie

World progress reversing

The supposedly unstoppable economic progress of world GDP is reversing in The Crisis in The Summer of 2008.

The governments of the world are buying and supporting financial components left and right.

Some governments are broke, some are becoming broke quickly, some currencies are worthless, some currencies are rapidly in the process of imploding.

The people of the world fearfully slowed their consumption starting a world wide contraction. Steel mills in some countries are being shuttered as end users such as auto manufacturers slow down.

To fight the contraction governments will reinflate starting in 2010. The end of the financial world as we know it may happen as soon as Dec 2012. Governments will fall.

The once in a lifetime start of Creative Destructionism is leading to the collapse of entrenched industries and technology. New industries and technologies will arise from the ashes of the old, fallen industries after a prolonged downturn.

jeffolie

The Europeans and other governments decided to guarantee interbank loans and major systematic risk banks, today, Sunday. These government guarantees will be backed by inflation of fiat currencies as they can not raise taxes during a recession.

There is a price to pay for those government guarantees. We have already seen the complete collapse of Iceland's currency.

Blanket guarantees of everything will eventually end in a collapse of some major country or some major currency, the breakup of the EU, or more likely governments creating inflationary credit and money supply.

GK

jeffolie,

Fundamental progress is not reversing at all. We are still not even close to having a single year of negative World GDP growth. There has not been once since 1973, and we will not have one in 2008 or 2009.

Note that recessions sometimes can accelerate technological change, as more advanced technology becomes cheaper, sooner.

Rick

I re-visited this site after finding the bookmark on my browser for:

http://futurist.typepad.com/my_weblog/2006/07/stock_market_ca.html

IMO, there is something big you are missing on your predictions. China will surpass the US in economic in real and nominal measurements before 2020. After the world bank/imf readjustment of China's gdp past year. It leaves China a little more than half the US in real terms as of last year. Considering China is in a position to continue to grow for at least another decade at high levels of growth. One could make the case that the gdp differential for China vs US is 6-8% per year. At that rate, the China would surpass the US before 2020. In addition, the yuan has been appreciating at a 6% annual rate, therefore, in about 10 years we will see parity in real and nominal figures for China's economy.

The reason I bring this up is because on your assessment in 2006, you were off considerably. If China's market cap would reach 0.7-1.0 of it's economy by 2020. We are talking a 16-20 trillion dollar stock market. Which would represent a 10-15 fold increase from today's market cap. Thus, any investing should keep that in mind since this is bound to change the world order of finance.

GK

Rick,

You have grossly overestimated the rate of China's GDP growth. It will only surpass the US in 2035 at the earliest.

China's nominal GDP is presently about $2.6T. To grow 5X in 12 years would be much faster than its current rate, and even then, that would only make it as big as the US is today, not as big as the US is in 2030.

So 2020 is a huge over-estimation.

ces

I like that you make predictions. Allow me to argue with your photovoltaic prediction: 2TW installed by 2032.

In 2008, we produce on the order of 5GW per year and have 10GW installed. PV is cost effective in places where electricity prices are high: Hawaii, California, Japan.

When we increase production by a factor of 10, costs drop in half. This basic trend occurs across a variety of industries and is one of the basic concepts that support the plausibility of the singularity.

Strong demand for solar PV has kept costs high since 2004 even though manufacturing costs have been dropping. As bottlenecks are removed, such as the production of polysilicon, prices will fall to reflect the recent learning in production.

In 2011, manufacturing costs will be fully half of what they were in 2004. Production will be at least 10GW/year. Japan and California will consume 6GW/year without subsidies. Continued subsidies in Europe to maintain a strong PV industry, along with China rapidly building out PV to support its rapid growth will continue to maintain demand and support continued rapid growth.

By 2018, PV production will be 100GW/year with prices falling another factor of two from 2011 levels. At that point, PV produced electricity is fully competitive with traditional electricity. And this corresponds to the point at which PV is being rapidly installed to recharge the batteries of parked cars during peak sunlight hours.

At this point, you have huge worldwide demand for PV. Africa is fully engaged in installing PV as it is cheaper than developing coal-fired power plants and the associated distribution grids. The developed world is similarily using PV to substitute for traditional forms of electricity while rapidly increasing demand for electricity via new technologies.

From 2018 to 2025, the question isn't whether PV will grow at 40%/year. It's whether it will *only* grow at 40%/year. So by 2025 2TW of PV will be installed, and PV will be significantly less expensive than traditional forms of electricity.

GK

ces,

Remember that the law of large numbers tends to catch up with people sooner than they think. It is bold to assume that 2018-25 will sustain a clean 40%+ growth rate throughout.

The raw materials needed for 2 TW of photovoltaics would also be large, driving prices up, slowing growth.

Despite Africa's vast land, their economy will be too small, even in the 2020s, to install as much photovoltaic capacity as people would like.

Dawg

When will India reach 0.800 HDI and income per capita parity with China?

chanel outlet

One thing I like about your blog is that you make actual predictions, even quantitative ones. It seems so many futurists today don't want to stick their neck out past 'scenarios' and 'trends'.

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